Real estate fund ( syndication )
How does a real estate fund or syndication work? looking to chat and gather information
All funds are syndications but not all syndications are funds.
In a syndication, the General Partner or Sponsor collects money from investors to purchase an asset. The General Partner must comply with SEC laws. They manage all aspects of the investment on behalf of the investors until the investment is wound up.
In many syndications the General Partner is trying to buy a specific asset. A Fund is simply where the General Partner is collecting a pool of money, often a large pool of money, to invest in future investment opportunities they may find.
Personally, I don't like Funds for a lot of reasons. Here are a few... First, since a Fund is often raised over a long period of time, you have to trust the GP is doing the math right on who "owns" what profit. Also, I've seen a lot of Funds buy properties I wouldn't touch or I've seen them dramatically overpay for others. Since you are investing in unknown assets when you send in your money, you are unable to underwrite the deal yourself. I've seen a lot of Fund people say the reason you want to get in the Fund is because they typically have 3 base hits for every grand slam so if you are in a Fund, you are almost guaranteed to get at least one grand slam. Since I've gotten good at underwriting deals presented by a GP, my passive investing track record is better than that. My average is about 200% profit in 36 months for an IRR of around 50%.
Quote from @Jermaine Johnson:
How does a real estate fund or syndication work? looking to chat and gather information
That is a hard question to answer in a post like this, a syndication is a partnership between a GP (the one running the deal) and LP(s) who are passively invested and do not make day to day decisions.
Return structures, fee structures, the profit split, distribution expectations, communication expectations,etc all vary company to company and even offering to offering.
Often times you must be an accredited investor to invest in a syndication, which means 200k income individually (300k jointly with spouse) for 2 years or 1m+ in net worth (not including primary residence)
Though there are syndications that do not have that requirement, the returns are usually lower from my experience.
The simple way to think about it is does money come first or does the deal come first, and does the investor choose the deal they invest in or not. In a fund the money is raised, sits in a dedicated bank account, then the operators buy properties or other investments with that cash when they find them. In a syndication the operator finds the deals, underwrites and does the due diligence up front, then raises the cash for one specific deal.
Some people prefer the choice of investing in the syndication because they know where their money is going. Some people like the diversity of a fund. Both are passive.
Generally people start with syndications then graduate into funds. Syndications will be deal by deal. Where funds will be raising blind capital to deploy into several deals.
A great book to learn more about syndication is Best Ever Apartment Syndication
It's not a super easy space to break into, raising capital is hard, especially if you are just getting going in RE. But it can be veryyyy lucrative !
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Quote from @Jermaine Johnson:
How does a real estate fund or syndication work? looking to chat and gather information
What are your specific questions? My recommendation is to do significant amount of research and then determine what your specific questions are. Between youtube and google you can figure out 80% of the information on what a syndication is and how it operates.
Hi @Jermaine Johnson, are you interested in being a syndicator or investing in a syndication or fund?
I recommend checking out @Whitney Sewell’s podcast called The Real Estate Syndication Show. You should check that out to get some basic information. Whitney is a great host and has a lot of great guests.
If you decide to go down this path you might want to get Gene Trowbridge’s book It's a Whole New Business!: The how-to book of syndicated investment real estate. This is a detailed handbook for syndicators.
If you decide you want to take a deeper dive in vetting syndicators and fund managers, I recommend @Brian Burke's book The Hands-Off Investor.
You should also consider joining a community of syndicators and investors. @Jim Pfeifer’s group is called Left Field Investors, its a fabulous group.
Happy investing!
I was able to scale my business by syndicating apartment deals. I wrote this syndication post and wanted to pass along the link:
Apartment Syndications And How To Tap Into Huge Passive Income Profits
I hope you find it helpful.
@Jermaine Johnson, I am happy to talk, if you are still interested. Please DM me, and we can connect. I have worked on both, and there are clear advantages to both, for the LPs and GPs. There are also disadvantages to each party in both. Additionally, there are a lot of different nuances to each type that can vary dramatically between single asset offerings and funds. At the end of the day it comes down to investing with people you feel good about, since all of these are private offerings.
From a high level, I like @Justin Moy's answer the most: the biggest consistent difference typically falls in timing of when deals come relative to the money.
@Jermaine Johnson I'd love to join the conversation as well! I have worked with several real estate funds and other asset classes too.
Others have made the distinction between a fund and a syndication offering on an individual project or group project. I have made many investments in syndicated RE projects - of various types. I have mostly avoided funds, for the simple reason that I like to know exactly where my investments are going, and can achieve diversity by investing in multiple projects over time. Most of my syndicated investments have been via a crowdfunding company. I have been writing about these investments for years now in my BP blog series
Have I Found the Holy Grail of Passive Real Estate Investing? In fact, I just posted my most recent quarterly update in (Part 4)
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Quote from @Larry Fried:As Larry said, there is a HUGE difference between a syndicated real estate purchase and a private real estate fund. Although syndicated projects are handled through a real estate fund of sorts, the syndicated deal is almost always a single project, or related properties. The investor know before his participation decision and before he invests money EXACTLY what he’s investing in. He should be provided with all details, and if he has real estate, analytical, and or financial experience and acumen then he should be able to access the risk, and filter out those opportunities with excess risk, low expected ROI, and those which do not meet any criteria he wishes to use.
Others have made the distinction between a fund and a syndication offering on an individual project or group project. I have made many investments in syndicated RE projects - of various types. I have mostly avoided funds, for the simple reason that I like to know exactly where my investments are going, and can achieve diversity by investing in multiple projects over time. Most of my syndicated investments have been via a crowdfunding company. I have been writing about these investments for years now in my BP blog series
Have I Found the Holy Grail of Passive Real Estate Investing? In fact, I just posted my most recent quarterly update in (Part 4)
investing in a fund is much more of a crap shoot. They aren’t called “blind pools” for nothing. The investor is more or less betting EXCLUSIVELY on the fund manager, as he will have at best only a general indication of the properties the fund will invest in. The investor will get a 100 + page PPM which will go into excruciating detail about what types of properties the fund INTENDS to invest in; the strategy(s) the fund intends to employ; the background of the fund managers, and 75 pages informing the investor that while the fund management will do their best to use their knowledge, experience, education, and contacts to make money, they aren’t legally responsible should the investor lose his investment.
whether an individual investor invests in a syndication, a fund or both really has to do with their experience, knowledge, preference for more active vs less active analysis, etc. Both can be extremely profitable - or a disaster. A lot of which is economy based and beyond the control of the syndicator/fund manager. Let me state the one main conclusion I’ve drawn after 22 years as a real estate syndicator having syndicated over 200 deals, and a real estate fund manager having managed 3 funds: nervous types should NOT invest in either. They will drive themselves, their family, their golfing buddies, and the fund management/syndicator, and everyone they come in contact with CRAZY with their insecurity, pessimism, worry, anxiety, over reaction to trivial events, self doubt and buyers remorse.
@Greg Scott... 1) In a Fund, is the GP required to comply with SEC laws just like a syndication? 2) If you collect a pool of money for fund, is there a holding expectation before you purchase an asset?